Posted 3 years ago on July 18, 2013, 12:26 p.m. EST by JackHall
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Formerly - Will the United States still be here in a thousand years? Part II

'The Rise of Outsourcing & Its Connection to Post-Industrial America'
From Steel Production to Hamburger Sales: the undeniable link between Outsourcing and Industrial Transition

Although the term “outsourcing” didn’t become relevant in the United States until the 1980’s, conceptually it plays a very important role in the immense industrialization that has occurred in the US in the last 100 years. A Post-Industrial society is one that has transitioned from a manufacturing based economy to a service based economy. This transition implies a “restructuring of society as a whole.”

According to University of Maryland’s George Ritzer, the transition from Industrial to Post-Industrial America hinges on the decline in manufacturing industries like clothing and steel production and the increase in services like selling hamburgers and offering advice on investments. This transition requires companies to move or contract some of their labor needs, like steel production, to other countries. Outsourcing occurs in post-industrial countries like the US when it becomes more profitable for companies to move or contract out some of their manufacturing or service operations to other countries.

The Development of Outsourcing

The end of World War II and the US transition to superpower status marks its shift from an industrial country to a post-industrial country. Before the war, America’s economy was almost completely self-sufficient, producing most of what it consumed. With its plentiful resources and diverse geography the US produced fruit, apparel, meat, machines, steel, along with automobiles. What couldn’t be produced on the home front was imported from foreign countries. Things like coffee, tea, spices, bananas, mineral ore, and diamonds were imported from abroad, but usually at great expense due to expensive transportation costs.

Outsourcing did not occur before World War II because international trade wasn’t as developed as it is today, due to increases in technology in the years after the war, that have greatly reduced the costs of transportation and communication.

After World War II, global trade greatly expanded—this was largely due to the United States’ aim to speed up the recovery of war-ravaged nations in Europe and Asia by importing their domestic goods. This was made possible with the federal government’s reduction in tariffs, which had greatly limited international trade in the past.

In the post-war era, the 1950s Presidential administrations of Harry S. Truman and Dwight D. Eisenhower worked hard to rebuild Japan’s economy, putting extra effort into the development of a textile industry. A trade relationship began to grow between the US and Japan, as Japan continued to rebuild, and the US began to import huge amounts of clothing from Japan along with neighboring countries that had built up their textile industry such as Taiwan, Hong Kong, South Korea, and the Philippines. With this, the seeds of outsourcing were planted.

This heavy import industry was not considered outsourcing because the US was purchasing entire goods produced overseas rather than moving their operations abroad. What became known as outsourcing occurred in the 1960s and 70s when American companies began contracting Asian producers to make clothing that had originally been made in the US. American companies outsourced apparel construction to Asia because labor costs were substantially lower (about 1/10th of US wages). Soon American companies caught on and in the 1960s and 70s they began to contract much of their domestic manufacturing to Asian countries.

1980s: The Rise of Global Outsourcing and Expanded International Trade

The term “Outsourcing” arose in the 1980s when US companies expanded their foreign operations from only Asia to Central America and South America. The 80s also saw the movement of European manufacturing abroad. Outsourcing and increased international trade was becoming the global dynamic.

The 80s mark a time of great technological improvement. The improvement in air transportation, more efficient overseas shipping, the reduced cost of international phone calls, the continued expansion of manufacturing abroad, combined with substantially lower wages all led to the increase in trade and the rise of outsourcing as we know it.

Negatives of Outsourcing

Although experts in the field of economics and public labor largely agree that outsourcing, as a form of trade, follow the principles of comparative advantage, which allows each country to benefit from it there are negatives that should be addressed. One complaint is quality; outsourced products are often thought to be of poorer materials and craftsmanship. But at much lower prices is the downgrade worth it? Ultimately it comes down to the buyer’s preferences.

As sited in Paul Krugman’s article in the New York Times “Feeling No Pain,” voiced, the rise of outsourcing and the spread of globalization have brought with them a new threat to worker security. Krugman writes that Outsourcing works against the very framework of Democracy, ”pitting one national workforce against another in an effort to lower firm costs and increase profits in the form of diminishing power an security of Labor as an influential pillar over the trajectory of societies or nations-states.”

Following President Clinton, a motivator of pro-trade policies, progressive economics, and a champion of the biggest free-trade agreement of our time (NAFTA) President George W. Bush has followed suit. Bush’s “economic growth” policies consist of a push for lower taxes, deregulation, few lawsuits, and an emphasis on energy policy.

Outsourcing, especially in the US, is a very controversial subject because many domestic jobs are lost when companies move their factories to lower-wage countries overseas. Economists tend to disagree with the public, generally believing that it is beneficial for the United States and to other countries because it increases economic efficiency.

Outsourcing on the Political Scene

The 2004 elections saw the rise of outsourcing in political agenda and debate. These debates were based around dominant public fear that outsourcing would leave many Americans jobless. A poll by Zogby International of 1,000 Americans found that 71% believed that outsourcing jobs hurt the economy, 62% found that the US government “should impose legislative action against companies that transfer domestic jobs overseas, possibly in the form of increased taxes on companies that outsource.”

Many American people felt betrayed by President Clinton’s North American Free Trade Agreement (NAFTA); an agreement that eliminated many North American trade barriers (in the form of tariffs, taxes, and other restrictions) and made outsourcing for cheaper labor in Mexico much easier. As in the past, Americans believed that NAFTA and its effects would lead to an increase in unemployment in the US. NAFTA along with other trade liberalizing movements led to the creation and expansion of the Trade Adjustment Assistance Act, which was designed as an attempt to re-train and locate displaced workers affected by outsourcing. It has proved largely unsuccessful, as only about a quarter of applicable people participate.

In recent times, not only are manufacturing jobs being sent overseas, but also technology and service jobs. As mentioned above, there is a vast spectrum of responses to outsourcing, positives along with negatives. Technology and service jobs are mainly going to countries in India and Eastern Europe, qualified and desperately in need of the work. One thing is certain, as outsourced jobs are moving from the strictly blue-collar sector to the much more vocal white-collar class outsourcing is becoming a much more volatile issue and has moved to the forefront of political deliberation.